Your current rental property portfolio is performing well and generating the return that you hoped for. The day will come when you decide it’s time to consider expansion. Investing in additional real estate increases the size of your portfolio and the potential for increased returns. However, there are some potential complications that come with purchasing additional properties.
Keep these buying rental property tips in mind when deciding if it’s the right time to purchase another property for your portfolio.
1. The Right Location
You already own one rental property, so purchasing a second one that’s in close proximity to your first house is ideal. You’ve already done all of the market research. Presumably, you purchased your first rental property in a desirable location. If your second property is close to the first, you can easily check on and manage both properties without having to spend time commuting. You can also negotiate with contractors for services done at both properties for a volume discount. For example, you could negotiate landscaping services for both properties.
2. Can You Afford The Down Payment?
You need to afford the down payment on the second property. Paying a down payment reduces the amount of money you have to borrow, which reduces your financial risk and monthly payment. There are also stricter approval requirements for obtaining a mortgage on investment properties, so having a strong down payment can improve your odds of getting approved.
3. Does it Meet the 1% Rule?
Consider the 1% rule when determining if you should invest in a particular property as your second investment. While every property investor has their own formula for determining if a piece of real estate is a good investment, the 1% rule is a generally accepted one. The rule states that your real estate investment is worth taking if it brings in no less than 1% of the price you paid for it as monthly income.
4. Can You Manage Multiple Properties?
Managing multiple properties takes up a significant amount of time. If you barely have free time for the property you’re currently managing, then you won’t have time to manage multiple properties. Don’t let this lack of time stand in your way of expanding your portfolio. Consider working with a property management surface. This will give you more free time while also expanding your investment real estate portfolio. Rental property managers can help you screen and place tenants, manage maintenance and repairs, and collect monthly rental payments. They will act as the point of contact for your tenants, ensuring their concerns and needs are promptly addressed.
5. Can You Afford the Fixed and Variable Expenses?
Purchase an additional rental property isn’t a one-and-done expense. Real estate represents ongoing expenses. Accurately predicting these expenses is crucial to ensure you don’t end up in the red at the end of the year. Fixed expenses are easier to predict because they stay consistent. These include things like homeowners’ insurance, property taxes, and HOA fees. The variable expenses are harder to predict. Therefore, it’s safest to pad your predicted budget to account for potential costs. Variable costs include things like unexpected repair costs.
Expand Your Rental Property Portfolio
If you think you are ready to expand your rental property portfolio, then keep these buying rental property tips in mind. Don’t just buy the first property you come across. The next property you buy needs to be in the right location, with a price you can afford. Before you purchase, consider whether or not you can afford the upkeep of the additional property and have the time to manage multiple properties.
Schedule a consultation with our property managers and plan your next rental property purchase.
